Supreme Court New South Wales Medium Neutral Citation: Walkabout II Pty Ltd v Jabulani Pty Ltd and Ors [2015] NSWSC 1569 Hearing dates: 21 and 22 October 2015 Decision date: 22 October 2015 Jurisdiction: Equity Before: Lindsay J Decision: Determination of the terms upon which reports of receivers of partnership property, prepared as referees to whom the task of taking accounts was referred, should be adopted. Catchwords: PARTNERSHIP –Partnership property – Dealings with partnership property - Appointment of receivers - Adoption of receivers' reports –Uniform Civil Procedure Rules 2005 NSW rule 20.24 Legislation Cited: Civil Procedure Act 2005 NSW Evidence Act 1995 NSW Supreme Court Rules 1970 NSW, part 72 rule 13 Uniform Civil Procedure Rules 2005 NSW rule 20.14 Cases Cited: Chocolate Factory Apartments v Westpoint Finances [2005] NSWSC 784 at [6]-[8] Foxman Holdings Pty Ltd v NMBE Pty Ltd (1994) 38 NSWLR 615 at 620E-G. Skinner & Edwards (Builders) Pty Limited v Australian Telecommunications Corporation (1992) 27 NSWLR 567 at 576B and 577B Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 at 563D-564A Texts Cited: - Category: Procedural and other rulings Parties: Plaintiff: Walkabout II Pty Ltd Defendants: Jabulani Pty Ltd and Others Representation: Counsel: Plaintiff: K Andronos SC Defendants: MS White SC Solicitors: Plaintiff: Pikes and Verekers Defendants: Ronayne Owens Lawyers File Number(s): 2012/298134 Judgment INTRODUCTION 1. In a partnership dispute behind which lie the interests of three natural persons (one of the plaintiff's side of the record, the other two on the defendants' side) several steps, including the proceedings presently before the Court, have been taken towards disentangling the affairs of the parties. 2. Considerations of practical convenience invite the corporate form of partners to be disregarded in favour of identification of the underlying interests of the natural persons as "partners" or "parties" to the proceedings. 3. Presently before the Court are competing motions for adoption of reports prepared by receivers of partnership property to whom, with the consent of all parties, the Court referred responsibility for the conduct of inquiries on the taking of partnership accounts. PROCEDURAL CONTEXT 1. The principal steps taken in the proceedings to date, culminating in the parties' motions, include the following. 2. First, on 28 September 2012 the Court, by consent, granted to the plaintiff interlocutory injunctions restraining the defendants from dealing with partnership assets "save as is necessary for the winding up of the partnership". 3. Secondly, on 8 October 2012 the Court, by consent, made orders, inter alia, to the following effect: 1. a declaration that the partnership was dissolved on 17 September 2012. 2. an order that the partnership be wound-up under the direction of the Court. 3. an order for the appointment of the receivers, coupled with an order conferring upon the receivers powers for the sale of partnership property. 4. an order for an account to be taken, and an inquiry to be held, as to the assets and liabilities of the partnership and the respective interests of the partners in partnership assets. 1. Thirdly, on 18 March 2014, the Court, by and with the consent of the parties, made orders that included an order under rule 20.14 of the Uniform Civil Procedure Rules 2005 NSW ("UCPR") that the process of taking accounts, and for that purpose conducting an inquiry, be referred to the receivers for inquiry and report. 2. Fourthly, the receivers, having conducted business required of them in their capacity as referees, delivered to the Court reports culminating in a report dated 14 November 2014 and a report dated 31 March 2015 which, for convenience, I here describe as the penultimate report and the final report respectively. 3. Fifthly, on 17 April 2015 the Court made orders designed, inter alia: (a) to provide a timetable for the parties to move the Court for adoption of the receivers' reports; (b) absent any contrary agreement between the parties, to provide for funds held by the receivers to be paid into court; and (c) to provide for the receivers to be discharged from their office as receivers upon their disposition of those funds in accordance with the Court's orders. 4. The receivers presently retain partnership funds pending consideration of their reports, and their discharge will not be fully effective until those funds are paid into court or otherwise dealt with consensually; but, having published their reports to the parties, they have ceased active participation in the proceedings. MOTIONS BEFORE THE COURT 1. Before the Court for present consideration are the parties' competing notices of motion (seeking orders under UCPR rule 20.24) for adoption of the receivers' reports, subject to particular modifications. The plaintiff's notice of motion was filed on 20 April 2015. The defendants move on an amended notice of motion filed on 29 May 2015. 2. The motions have been heard together. 3. At the commencement of the hearing the plaintiff expressly disclaimed prayers for relief in its motion relating to the costs of various interlocutory stages of the principal proceedings. The focus for attention, accordingly, returned to the question of the terms upon which the receivers' reports should be adopted. 4. With editorial modifications, UCPR rule 20.24 provides as follows: "20.24 Proceedings on the report (1) If a report [such as those under consideration in these proceedings is made], the court may on a matter of fact or law, or both, do any of the following: (a) it may adopt, vary or reject the report in whole or in part, (b) it may require an explanation by way of report from the referee, (c) it may, on any ground, remit for further consideration by the referee the whole or any part of the matter referred for a further report, (d) it may decide any matter on the evidence taken before the referee, with or without additional evidence, and must, in any event, give such judgment or make such order as the court thinks fit. (2) Evidence additional to the evidence taken before the referee may not be adduced before the court except by leave of the court." 1. The parties agree that the principles to be applied by the Court (in exercising the discretion conferred upon it by UCPR rule 20.24 to adopt, vary or reject in whole or part a report of a referee) are those summarised by McDougall J (in relation to an earlier form of UCPR rule 20.24 found in the Supreme Court Rules 1970 NSW, Part 72 rule 13) in Chocolate Factory Apartments v Westpoint Finances [2005] NSWSC 784 at [6]-[8]. 2. Senior Counsel for the plaintiff reinforced particular aspects of those principles by reference to the judgment of Cole J in Skinner & Edwards (Builders) Pty Limited v Australian Telecommunications Corporation (1992) 27 NSWLR 567 at 576B and 577B; the judgment of the Court of Appeal (constituted by Gleeson CJ and Mahoney and Clarke JJA) in Super Pty Ltd v SJP Formwork (Aust) Pty Ltd (1992) 29 NSWLR 549 at 563D-564A; and the judgment of Cole J in Foxman Holdings Pty Ltd v NMBE Pty Ltd (1994) 38 NSWLR 615 at 620E-G. THE PARAMETERS OF DISPUTATION 1. The parameters of the parties' present dispute about the receivers' reports can be defined by reference to a table (Table 9.1) set out in paragraph 9, on page 18, of the final report under the heading "Summary of Findings". 2. That table commences with an estimate of the net assets of the partnership at 28 February, 2015 (funds totalling $258,317 held by the receivers). It notionally provides for the addition of "potential recoveries"; the subtraction of "potential liabilities"; and other adjustments necessary to be made before there can be a distribution of partnership assets between the partners. 3. The parties have agreed upon two arithmetical corrections to the table, and the inclusion of a liability for which provision beyond that recorded by the receivers in Table 9.1 should be made. 4. The arithmetical corrections can be passed over, implicitly recorded in discussion of items in dispute otherwise recorded in this judgment. 5. The inclusion of a liability should, however, be specifically recorded. That is a sum of $167,194.50 (representing the sum of amounts recorded in paragraph 5.2(v), on page 11, of the receivers' final report) for long service leave to be allowed in favour of the two natural persons who, for practical convenience, may be recognised as the "partners" on the defendants' side of the record. 6. Disputation between the parties on their motions is confined to the question whether the defendants should be ordered to pay into the fund representing partnership assets (whether that fund be held by the receivers, as is presently the case; paid into court with the amount presently held by the receivers; or otherwise administered): 1. $162,667 on account of "annual leave" entitlements paid to "the defendants" which the receivers have found ought not to have been charged to the partnership (as distinct from an American business also conducted in partnership); 2. $154,384.32 on account of "redundancy payments" made to "the defendants" by the partnership but which the receivers have found ought not to have been paid; and 3. $115,670, representing losses incurred by the partnership by reason of unauthorised trading by "the defendants" following appointment of the receivers. 1. Debate on these topics has taken the form of written, and oral, submissions by Senior Counsel on each side of the record. The plaintiff's written submissions are dated 26 June and 2 October 2015. The defendants' written submissions are dated 15 July and 22 October 2015. 2. The parties have also tendered evidence in support of the motions, recognising that UCPR rule 20.24(2) mandates that evidence additional to the evidence before a referee may not be adduced before the Court without a grant of leave. 3. On the question of "annual leave", the defendants tendered, ultimately without any objection on the part of the plaintiff, a bundle of documents (admitted as exhibit D1) representing documents that were referred to by the receivers in their report or, at least, were the subject of consideration by the receivers in preparation of their reports. 4. On the question of "redundancy payments", the plaintiff tendered a bundle of documents (admitted as Exhibit P4 without objection) evidencing questions asked by the receivers and answers given by the defendants. 5. The defendants, for their part, tendered a bundle of documents (marked for identification as "MFI D2") including extracts from affidavits intended to supplement materials placed before the receivers. The plaintiff objects to that tender. 6. On the question of recovery of "unauthorised trading" losses, the plaintiff tendered a bundle of documents (admitted into evidence as "Exhibit P5" without objection) with the substantive object, principally, of evidencing questions asked by the receivers and the defendants' responses. The exhibit does, however, also include a letter dated 17 June 2015 addressed by the receivers to the parties expressly declining to participate in proceedings relating to the Court's adoption of their reports. 7. The defendants, for their part, tendered a bundle of documents (marked for identification as "MFI D3"), including extracts from affidavits, intended to supplement the materials before the receivers or, at least, to demonstrate the course of dealings between the defendants and the receivers relating to post-receivership trading. 8. I do not propose to admit into evidence either the bundle of documents MFI D2 or the bundle MFI D3. To do so would both substantially undermine the alternative dispute resolution procedure for which references to referees provide, and condemn the parties to a reopening of factual disputes relating to the findings made by the receivers. 9. Senior Counsel for the plaintiff contends, and I accept, that if this material were admitted as evidence it would be necessary for his client to make inquiries of the receivers before being in a position to indicate whether an (and, if so, what) evidentiary response to it might be required. He also draws to attention the fact that the process that culminated in the receivers' final report included, as evidenced by the penultimate report and Exhibits P4 and P5, provision to the defendants of a fair opportunity to engage with concerns expressed by the receivers. He complains, with some justification, that the defendants are seeking to "re-litigate" questions which should, in the context of a reference to referees, be taken to have been determined by the receivers. 10. In my assessment, and taking into account the case management principles for which Part 6 Division 1 (sections 56-60) of the Civil Procedure Act 2005 NSW provide, the interests of justice require that the defendants' controversial tender of documentation (MFI D2 and MFI D3) be rejected. If that documentation were otherwise admissible, I would make orders under section 135 of the Evidence Act 1995 NSW to exclude it from evidence on the hearing of the motions. 11. In my assessment, the parties can fairly, and should, be held to the dispute resolution procedure for which a reference to referees provides. They should not be permitted, under the guise of debate about the terms upon which a referee's report should be adopted, to reagitate questions in dispute. ANALYSIS AND CONCLUSIONS 1. Having considered the parties' respective submissions and the evidence adduced on the hearing of the motions without objection, I propose to adopt the receivers' reports subject to two qualifications. First, as agreed between the parties, an allowance should be made in the sum of $167,194.50 in favour of the defendants for "long service leave". Secondly, I reject the receivers' finding that the defendants should make an allowance (quantified at $162,667) for repayment of "annual leave" entitlements. 2. Implicit in this determination is a decision that the receivers' findings about "redundancy payments" and "losses from unauthorised trading" (respectively quantified in charges of $154,348.32 and $115,670 to the account of the defendants) should be adopted. 3. My reasons for these conclusions can be briefly stated. 4. In relation to "annual leave", I accept the defendants' submission, by reference to Exhibit D1, that the receivers (in paragraphs 2.1 and 2.2 of their final report) misunderstood an explanation given to them by the partnership bookkeeper about why annual leave entitlements of "the defendants" had been charged to the partnership, with the consequence that they discounted primary documentation provided by the defendants. I accept, also, that there is incongruity in acceptance of "the defendants'" entitlement to long service leave but rejection of their entitlement to annual leave. 5. In relation to "redundancy payments" (the subject of findings by the receivers in paragraph 4.1 of their final report), I accept the plaintiff's contention that the receivers' analysis is appropriately thorough, analytical and scientific in its approach. I do not accept the defendants' contention that the receivers ought to have aggregated the number of persons employed by the partnership in Australia with a number of persons employed in a "related" American business. There was no contractual entitlement for "the defendants" to receive redundancy payments. As Exhibit P4 evidences, the defendants acquiesced in the receivers' determination that the partnership business was "a small business (as in under 15 employees)", with the consequence that there was no statutory obligation on the partnership to pay, and there was no corresponding entitlement in "the defendants" to receive, redundancy payments. 6. In relation to "recovery of unauthorised trading losses" (the subject of findings by the receivers in paragraph 4 on page 6, and paragraph 4.2 on pages 8-9, of the final report), I accept the plaintiff's submission that the report is appropriately thorough, analytical and scientific in its approach. I do not accept the defendants' contention that the qualification of the interlocutory injunctions granted against them on 28 September 2012 conferred upon them authority to trade in partnership assets for the purpose of the winding up of the partnership. Moreover, partners who deal in partnership assets following dissolution of a partnership, pending its winding-up, retain fiduciary obligations referable to their dealings in partnership assets: Chan v Zacharia (1984) 154 CLR 178. 7. The receivers did not acquiesce in "the defendants'" post-receivership trading in circumstances in which, because of a dispute about partnership property, the defendants claimed an entitlement to do what they did. The defendants "traded" at their own risk. Having done so, and having had an opportunity to engage with the receivers (as evidenced by Exhibit P5) in the adjudicative process leading to the receivers' final report, there is no basis upon which, in the interests of justice, the receivers' findings should be disturbed. PROPOSED ORDERS AND COSTS 1. Having made these determinations, I propose to allow the parties an opportunity to bring in short minutes of orders designed, so far as possible, to bring the principal proceedings to an end, and to address the Court on outstanding questions relating to costs. *********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 22 October 2015